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New law means California households without health insurance could lose thousands of dollars

Gov. Gavin Newsom discusses his revised 2019-2020 state budget during a news conference Thursday, May 9, 2019 in Sacramento, Calif. Some lawmakers and advocates are raising doubts about the Democratic governor&#39;s plan to shore up Obamacare with a tax penalty on people who don't buy insurance.
Palm Springs Desert Sun

Uninsured Californians who think the 2017 repeal of the federal tax on people who refuse to obtain health insurance takes them off the hook could face a painful surprise when they pay their 2020 state taxes.

A new California law that went into effect on Wednesday resuscitates the requirement that people obtain health coverage or face tax penalties. An adult who is uninsured in 2020 face could be hit with a state tax charge of $695 or 2.5% of his or her gross income.

A family of four could pay a penalty of at least $2,085.

The penalty is designed to help fund more than $400 million in new annual state insurance subsidies, including first-time assistance aimed at middle-income households. Though leaders of the Covered California insurance exchange are emphasizing the penalties, some local observers contend many people still don't know about them.

"I barely know," said Connie Kline, a Simi Valley tax preparer insured through Covered California. " I can pretty much tell you the public doesn't know about it."

Covered California spokesman James Scullary contended the new subsidies and the penalties are part of the reason sign-ups are up in an enrollment season that ends on Jan. 31. But some of the agents helping people say many of their clients come in unaware.

"I would say about half and half," said Roger Hayek, a Newbury Park insurance agent.

How does it work?

Households could pay a flat fine — $695 for each uninsured adult and $347.50 for each child — or 2.5% of their income, whichever is higher. The penalties will be paid to the California Franchise Tax Board when 2020 taxes are paid in the year 2021.

Who is exempt?

People uninsured for no more than three consecutive months are exempt. People who don't make enough to file state taxes also avoid penalties as do households where coverage cost would be more than 8.24% of income.

Other exemptions include general hardships that can range from bankruptcy to death of a loved one, membership to a group that relies solely on religious methods of healing, incarceration and membership in a federally recognized American Indian tribe. For a full list, go to https://tinyurl.com/wjxsqt8.

Why is there a penalty?

The penalty was included in the California budget as a way to provide for new state insurance subsidies. The help includes state aid for people who qualify for federal help and first-time subsidies for middle-income families.

The latter subsidies are available to many families who earn between 400% and 600% of the federal poverty level — about $50,000 to $75,000 a year for an individual. Eligibility is also affected by factors including the cost of health care in an area.

Covered California officials say the the middle-income families eligible for the subsidies could receive an average of $460 a month.

What happened to the federal mandate?

The Affordable Care Act also known as Obamacare included a requirement that people obtain insurance or face federal tax penalties. Congress reduced the penalty to $0 in a 2017 action that kicked in last year.

A federal appeals court in New Orleans ruled in December that the federal insurance mandate was rendered unconstitutional by the congressional action. Supporters of the mandate and the Affordable Care Act say they will appeal to the U.S. Supreme Court.

What are the deadlines?

Open enrollment for Covered California ends on Jan. 31 though late enrollment is an option for people who meet exemptions that range from being newly married to recently moving to California. People who want to find local experts who can help them enroll can go to https://www.coveredca.com/find-help/.